The capital market regulator will be undertaking a detailed study of commodities exchanges to frame the regulation to rein over mushrooming commodities exchanges.
The High Level Financial Coordination Committee had directed Securities Board of Nepal (Sebon) to conduct a comprehensive study of the commodities market during its latest meeting.
“Sebon will hire an independent expert to conduct the study which will figure out how these exchanges are operating and what are they trading on, the modes of payments and all,” informed director of Sebon Niraj Giri.
According to the data made available by Company Registrar’s Office (CRO), there are 52 companies registered as ‘brokerage and exchange’ signalling a huge economic trouble in the future, if not tackled immediately, he added.
At present, the commodities exchanges are operating without any regulatory rein, making them financially ticking time bomb that will engulf many, if explodes.
Unlike other financial intermediary, the exchanges need not publish any statistics showing how much money is involved in the sector and the exchanges are not answerable to authorities regarding their business dealings as well. There is also no account of the money handled by the exchanges except of the amount shown as income and expenditure in their balance sheet for tax purposes, according to the experts.
“Even if the exchanges are duping the investors or creating fake trading there is no way of figuring that out in the absence of proper regulation and guidelines governing them,” Giri pointed out. Though the stock market is going through a period of bust, commodities market seems to have flourished lately. At present there are six commodity exchanges in operation — Commodities and Metal Exchange Nepal Limited (COMEN), Mercantile Exchange Nepal Ltd (MEX), Nepal Spot Exchange limited (NSE), Nepal Derivative Exchange (NDEX), Wealth Exchange (WEX) and newly opened Commodity Futures Exchange (CFX).
These exchanges allow the trading of crude oil, precious and industrial metals, natural gas and agro products based on futures, spot and options contracts. Since last budget the government had decided to bring law to supervise and regulate futures and commodities markets. Sebon being the capital market regulatory authority had been asked by the government to undertake the responsibility of supervising the inflating commodities market.
But the capital market regulator has to amend the existing Securities Act to include the commodities market under their jurisdiction. The amendment has to be endorsed by the cabinet to make Sebon a regulator for commodities exchanges– which are demanding regulator to look over their dealings to get public trust.